Normally called The 5, for Owners it is the 6 D’s of Personal Black Swan Events

Did you know that 79% of business owners have no written transition plan and 48% have done no exit
planning at all? And on top of that, roughly 50% of all business exits are involuntary and are forced
by dramatic external factors. You need to have a well-thought-out plan of what happens if something
unexpected happens to you or someone in your family, directly impacting your business.

Owners need to plan for how they want to walk away
from their business not only in a perfect scenario,
but also in a worst-case situation. Throughout
the exit planning process, it is critical to consider
the following scenarios that force owners to exit
their business hurriedly, and often leaving value
on the table. They are often referred to as the 5 D’s:

  • Death
  • Disability
  • Divorce
  • Disagreement
  • Distress
  • Disruption

We often think that a Will addresses the needs upon
the death of an owner. If your partner or spouse
passes, do you have the ability to continue their job
at the level they were performing it? If you’re put in
a position where you need to stay home to take care
of a suddenly sick or disabled family member, what
will happen if you are forced to exit your business
due to your inability to come into work?
It is important to run through the tough questions
about what you want to happen to your business
if you have to exit your business prematurely.
Statistics have shown that in the four years
following an owner’s death, sales declined 60%
on average and employment fell 17%, resulting
in a decline the overall valuation of the business.
Additionally, two years after an owner’s death, firms
are 20% more likely to fail or file for bankruptcy

It is important to have a plan in place to avoid
these issues happening to your business in your
sudden absence.
What do you want your family, clients and
management team to know? What do you want
to happen if you die or become disabled? What
should happen if you or your spouse wants a
divorce? What happens if there is a disagreement
between business partners? An unplanned exit can
not only impact the day-to-day operations of your
business, but also the tax and legal aspects of it,
along with the value of your company. You need to
create contingency plans for each of the 5 D’s to be
properly prepared for any unplanned scenario.
While each of these unplanned events will
undoubtedly be treated differently, an important
step to take is creating and communicating the
action plan for each contingency. This is done
through a contingency letter, which serves as a
playbook that is a shorthand to your operating
agreement and your estate planning documents.
Your contingency letter should outline what you,
as the owner, would like to happen if you can no
longer operate the business.
Have you planned for these contingencies? Part of
the role a CEPA. plays is to educate the business
owner on how to de-risk the business. Some of
the largest risks to the business can be planned
for and some cannot. These are events that are
usually out of your control and can ruin the value of
your business.


Imagine right now; you are in the middle of an intersection and are T-Boned. What do you want your family,
management team, and ownership team to know? What happens to your loans? Are the beneficiaries on
your assets and life insurance correct? Who should family and management talk to for advice? Do you have
a documented plan for those impacted by this event? What obligations does your business have to your
estate for the value of your shares?


Now imagine that you had a stroke and cannot talk or write. Does your family know where your important
papers are? Do you have a power of attorney for financial and medical matters? Do others have essential
passwords that enable them to pay your bills or interface with customers, vendors, etc.? Will this event
invoke a purchase of your shares? How will it be paid? Who has the right to vote your shares?


Your spouse announces that he/she has grown apart from you and now wants to end your marriage while the two
of you are still friends. How will your shares be valued in a divorce? Do you have a prenuptial agreement? How
will the changes in your finances impact the cash needs of the company? Do you know your options on how to
create a non-adversarial process to make the decisions needed to unbundle your financial affairs at the end of a
marriage and mitigate the impact on your business?


When multiple partners enter into a business, is it all roses and rainbows? They rarely prepare for conflict with a productive exit clause. Like all relationships, business partners sometimes decide not to co-own a
business. How will your interest be valued? How will it be paid?


2020 has taught all of us some painful lessons regarding business interruptions and external threats we could
never imagine. Many businesses suffered disruption to their business’s productivity and the delivery of their
products. What was the strength of your back up system? What insurances did you have to cover business
interruption? Good contingency planning includes risk reduction strategies and policies to protect against
everyday disaster situations, including data breaches, property disasters, supply chain disruption, work safety
incidents, and critical employee loss.


Time, innovation, and technology continually march on. Some business can become completely unviable overnight. Others slowly bleed to death. CEPA’s work together to create a plan that will “De-Risk” the negative impact of all these events. CEPA’s will help you assess what
you currently have in place, what you may need to do as your systems grow and change, and why this process should be reviewed

One of the best ways to protect against the 6 D’s is proactively during the Value Acceleration Process.

Daniel L. Bishop CFP© CEPA©

Daniel L. Bishop is a Advice-Only Comprehensive Financial Planner that has experience in education funding from cradle to career: His deep expertise is in optimizing Late Stage College Funding into a Master Financial Plan for people with complicated situations, like business owners who are nearing retirement and need to prepare for a business exit on their own terms. He founded Black Swan Advisors LLC in 2016, so that he could pursue his passion of real, honest, financial planning advice for families. He loves working virtually with clients across the Heartland of America. Daniel and his wife modernized a century-old, lakefront farm house in southern Illinois. After work, you can often find tpaying with their 2 kids, preferably in the water.